Ravi Iyengar, founder and CEO of CoinTerra, said that his company used to sell equal numbers of ASIC mining units to individual investors and institutional miners, who would buy them in larger volumes.

"The ratio of small retail miners to institutional miners has gone down," said Iyengar, adding that now, fewer than 20% of the units CoinTerra sells go to people mining from home.

The downturn in sales to retail miners happened over the last five months, as the price dropped.

The cost of energy

There are various factors affecting the profitability of bitcoin mining. Hardware cost is one, while the price of bitcoins is another. The cost of electricity is also significant.

Iyengar said:

"At this point in time, home hobbyist mining doesn’t seem attractive because people aren’t getting the kind of electricity prices that big miners in low-cost locations are getting."

The average US retail electricity cost was 10 cents per kilowatt hour (kWh) in 2013, according to the US Chamber of Commerce Insitute for 21st Century Energy. At the current difficulty and bitcoin price, that means it would take around a year to break even using one of the used 1.6 TH/sec TerraMiner boxes that the firm is selling for $849 from its own mining data centres.

In Massachusetts, where the cost goes up to 14.5 cents/kWh, the break-even theoretically fails altogether. The exact figures will change over time, but the rise in costs is significant because units with high power consumption amplify even slight increases in electricity pricing.

What about a more state-of-the-art machine? KnCMiner's Neptune (currently out of stock) offers 3.5 TH/sec at just under 2 kW, for a hardware investment of $5,995. That seems to work out worse than the TerraMiner, at a 1.5 year ROI.

There are more efficient units coming onto the market, of course, but Adam McKenna, founder of mining pool Multipool, explained that home hobbyist miners are almost always behind the curve, putting cash down for a unit that won't ship for months, in a market where every day matters.

McKenna said:

"By the time the home user's unit is delivered, difficulty might have increased by 20-30% or more".

We ran numbers above on used TerraMiner ASICs, but CoinTerra is promoting a 16nm AIRE device that is far more cost effective, providing 4.5 TH/sec at 1.35 kW. That won't ship until Q1 next year, though, and the difficulty will have risen already by the time that anyone gets to mine with it.

Benefits for the big boys

Institutional miners have it easier, because they have access to far cheaper electricity.

"The electricity bills at home are much more expensive than you’d pay in a data centre," said Emmanuel Abiodun, president and chief commercial officer at PeerNova. PeerNova sells its own mining racks and also owns CloudHashing, which provides mining contracts to individuals.

The average cost of electricity for US industrial users was around 7 cents per KWh this year, according to 451 Research. And data centers can position themselves in areas where electricity is far cheaper, such as in the Pacific Northwest, with access to hydroelectric and other cost-reducing energy technologies.

Data centres also have an advantage when it comes to securing mining equipment, explained Multipool's McKenna:

"The main barrier to home miners is delivery date, since large buyers like cloud mining operations can typically negotiate to get their orders delivered sooner than someone buying one or two units."

The use of some mining equipment can also be problematic. Modern ASIC miners sometimes require more power than can be drawn from a typical 15-amp home circuit, making them difficult to host in a home environment. This is a problem that data centres don't have.

“"It's not generally possible to mine most SHA-256 altcoins 24/7 and make more than you would mining bitcoin."”

Data centres also have a capital advantage, not only because they can write down the cost of their equipment more easily, but because some of them can make their own equipment. One such business is CloudHashing.

Abiodun, who founded CloudHashing, has his own painful history here, having been let down by a major miner manufacturer when first starting out. After some negotiations with other ASIC vendors, CloudHashing ended up making its own chips.

Changes in bitcoin's price

With bitcoin prices so low at the moment, it's no wonder payback rates are so low. But if prices jumped to $1,000 again at today's difficulty, then things might improve. Our hypothetical TerraMiner might get our investment back in around seven weeks.

So, should home hobbyist miners continue to mine in the hope that prices will improve?

"If you’re a small home miner and if you’re counting on the fact that bitcoin will go up, then you’ll be better off buying coins," said Iyengar.

If you're mining a coin because you're convinced that the price will rise, then spending $324 on a bitcoin today means that you're buying in at a fixed price and difficulty, and waiting for the market to work for you. But, if you use that money to mine, then you'll be paying for your bitcoin over time, battling rising difficulty in the interim.

What about altcoins?

The other option is to buy bitcoin-mining contracts from the very players who are selling the mining equipment in the first place, although then, you're buying hashrate at a slight premium. Could hobbyist miners switch to altcoins instead, for a better return?

Multipool offers many different cryptocurrency options, but McKenna offers a word of warning:

"Low prices and very low difficulty on most SHA-256 alt chains, combined with profit-switching pools like Multipool, tend to keep altcoin profitability at or below bitcoin's. So it's not generally possible to mine most SHA-256 alts 24/7 and make more than you would mining bitcoin, unless you are speculating that the price of a particular altcoin will rise substantially in the future."

What this seems to mean is that home hobbyist miners are doing it for love rather than financial gain at this point, at least until prices rise significantly, at which point they could turn on their ASIC boxes and have another stab at it.

Technology hobbyists often do things for love in many fields beyond bitcoin, though. This is what makes them so awesome. Just as long as they understand the economics and aren't being caught out.

Disclaimer: The views expressed in this article are those of the author and interviewees and do not necessarily represent the views of, and should not be attributed to, CoinDesk. Additionally, the article should not be considered investment advice.

Ravi Iyengar, founder and CEO of CoinTerra , said that his company used to sell equal numbers of ASIC mining units to individual investors and institutional miners, who would buy them in larger volumes.

"The ratio of small retail miners to institutional miners has gone down," said Iyengar, adding that now, fewer than 20% of the units CoinTerra […]